[Flyin_bryan]

Exerpt from a paper I just wrote


.........Enter May 2008. Already four airlines have gone bankrupt in the prior month of April: Eos Airlines, Frontier Airlines, Skybus Airlines and ATA. Hundreds of flight crews and employees have been laid off. The results are just down the road; take a drive through Sky Harbor. What do airports do when bankrupt airlines leave aircraft sitting at terminals? They tow the airplanes to the edge of the Airport and leave them. The massive line of aircraft is located on the north side of Sky Harbor Blvd on the west end of the airport, and no these aircraft not waiting to takeoff, they are parked.


Just one example of how the state of air travel in the United States has perhaps never been worse; and this is just the tip of the iceberg. There are several fundamental changes occurring within the industry. The largest however, is the dramatic rise in fuel costs, which now make the single largest expense of an airline. The Vancouver Sun’s recent article “Fuel issues will ground the airline industry” is not as far flung as one might imagine. Writers Anthony Perl and Richard Gilbert feel “this is not a hypothetical doomsday scenario cooked up by environmental activists, but a quickly emerging reality as world oil production plateaus and then goes into permanent decline” (Anthony and Gilbert).


In fact, there is growing evidence that air industry leaders recognize the industry cannot continue down its current path of skyrocketing fuel prices. Fuel prices must eventually be passed along to the consumer. Just as airlines grew out of cheap prices for tickets, a sharp increase in ticket price will slash demand for air travel. The newspaper USA Today agrees with this position stating that “with today's unprecedented jet fuel prices... only extreme fare increases and dramatic cutbacks in flights will enable the industry to cover a 2008 jet fuel bill [that] …will be 44% higher than last year's” (Mutsabaugh). The Vancouver Sun article points out that in 2004, the then-CEO of Continental Airlines, Gordon Bethune, stated that "This industry doesn't work at $38-a-barrel oil." Last week, the chief financial officer of American Airlines Tom Horton said "there really is no playbook now for $110 barrel oil." (Anthony and Gilbert). A Houston Chronicle headline sums up fuel prices this week with “Sector snap: Airline stocks drop as oil hits $120 a barrel” (The Associated Press).


Moreover, the past two weeks have been particularly shaky for the airline industry and airline stocks. During the first quarter of 2008, deficits at the eight largest U.S. carriers will total $1.4 billion, yes BILLION (Schlangenstein). United Airlines lost nearly a third of the total, about $537 million dollars. There’s no doubt that these airlines are scrambling, they will likely go bankrupt before the end of the year if they do not change big time. Many are trying everything from mergers (Delta-NWA, United-US Airways) to new alliances (American, British Airways and Continental) to stay afloat (Mutsabaugh). Phoenix based Southwest Airlines was the only airline to actually make money this quarter; it predicted soaring fuel prices and bought tremendous amounts of fuel at 2006 prices, an industry tool known as fuel hedging.


Headlines from Reuters read “Airlines face worst crisis since 2001”, a point in time when airlines were forced to remain grounded and the demand for air travel vanished overnight. The Routers article details “the latest signals from credit markets show[ing] default and bankruptcy risk is rising [among airlines], even after four main carriers United Airlines, US Airways, Delta Air Lines Inc, and Northwest Airlines Corp, retooled themselves under Chapter 11 filings [earlier] this decade (Siew).

Rising fuel prices are not the only problem airlines are coping with. The current economic slowdown is brewing the airline industry’s perfect storm. Consumer discretionary spending is down. “People are cutting back their expenses” cites the Boston Globe in a recent article about the construction of a new high end mall (Abelson).


In addition, an airline maintenance crackdown by the Federal Aviation Administration has been revealing aircraft maintenance oversights by numerous airlines. In April, American Airlines grounded its entire fleet of MD-80 aircraft and cancelled more than 3,000 flights leaving travels stranded and frustrated. Airlines are shooting themselves in the foot. Who wants to fly on airplanes that are not being properly maintained?

There is no question that times are tough for the airline industry, with tougher times ahead. Rising costs of fuel, an economic slowdown, and maintenance problems are causing a meltdown. Planning a career in such a volatile industry under its current circumstances doesn’t appear to be a wise choice. The New York Times reports the number of student pilots is down by about a third since 1990, from 129,000 to 88,000. The number of private pilots is down from 299,000 to 236,000… And they are aging” (Wald).